Moody’s downgrades Lebanon, cites default risk

A worker walks past food items displayed for sale inside a supermarket in Beirut, Lebanon November 5, 2019. (Reuters)
Updated 05 November 2019

Moody’s downgrades Lebanon, cites default risk

  • Lebanon’s issuer rating, which was lowered from Caa1, remained under review for downgrade
  • The price of Lebanon’s dollar eurobonds fell by more than 2 cents in the dollar

BEIRUT: Moody’s Investors Service on Tuesday downgraded Lebanon’s rating to Caa2, citing the increased likelihood of a debt rescheduling it would classify as a default, following protests that toppled the government and shook investor confidence.
Lebanon’s issuer rating, which was lowered from Caa1, remained under review for downgrade, Moody’s said. Moody’s classifies Caa ratings as very high credit risk.
“In the absence of rapid and significant policy change, a rapidly deteriorating balance of payments and deposit outflows will bring GDP growth to or below zero, further stoking social discontent, undermining debt sustainability and increasingly threatening the viability of the peg,” the ratings agency said.
Several weeks of protests have led to the resignation of Prime Minister Saad Al-Hariri, stalling the chances of reforms to the 2020 budget and further draining Lebanon’s already depleted foreign exchange reserves.
In a sign of Lebanon’s increasing financial stress, the cost of insuring its debt has touched record levels in recent weeks and eurobond yields have risen to distressed levels. On Tuesday, the price of Lebanon’s dollar eurobonds fell by more than 2 cents in the dollar, according to Tradeweb data.
Moody’s said it expected the central bank’s usable foreign exchange buffer of about $5-10 billion will “likely be consumed” by the government’s forthcoming external debt service payments estimated at $6.5 billion this year and next, including a $1.5 billion maturity on Nov. 28.
The rating and review for further downgrade “reflect the increasing likelihood of a debt rescheduling or other credit negative liability management exercise that could result in private sector holders of government liabilities suffering significant losses,” Moody’s said.
That would constitute a default under Moody’s definition, it added.
Lebanon has never defaulted on its external debt, despite frequent bouts of political and security instability.
The central bank’s holdings of government securities implied Lebanon had options for debt management in the near-term that would limit losses for the private sector in the event of a default, Moody’s said.
Options such as debt maturity extension or debt cancelation involving the central bank’s debt holdings amounting to 50% of GDP could help as long as the currency’s peg to the US dollar remained, the agency said.
“However, those options are diminishing the longer Lebanon’s economic and political crisis persists,” it added.


Alibaba confirms huge Hong Kong public listing worth at least $13bn

Updated 15 November 2019

Alibaba confirms huge Hong Kong public listing worth at least $13bn

  • Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade
  • Alibaba Chief Executive Officer said the group wanted to participate in Hong Kong’s future

HONG KONG: Chinese technology giant Alibaba on Friday confirmed plans to list in Hong Kong in what it called a $13 billion vote of confidence in the turbulent city’s markets and a step forward in its plans to go global.
The enormous IPO, which Hong Kong had lobbied for, will come as a boost for authorities wrestling with pro-democracy protests that have tarnished the financial hub’s image for order and security and hammered its stock market.
Alibaba will offer 500 million shares at a maximum of HK$188 apiece to retail investors, the company said. The number eight is considered auspicious in China.
Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade after insurance giant AIA raised $20.5 billion in 2010.
Alibaba had planned to list in the summer but called it off owing to the city’s long-running pro-democracy protests and the China-US trade war. The US and China are now working on sealing a partial trade deal.
Daniel Zhang, Alibaba Chief Executive Officer, said the group wanted to “contribute, in our small way, and participate in the future of Hong Kong.”
“During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright,” he said.
The firm’s shares are already traded in New York. A second listing in Hong Kong is expected to curry favor with Beijing, which has sought to encourage its current and future big tech firms to list nearer to home after the loss of companies such as Baidu to Wall Street.
In the statement, Zhang said that when Alibaba went public in 2014 it “missed out on Hong Kong with regret.”
Mainland authorities have also stepped up moves to attract such listings, including launching a new technology board in Shanghai in July.
The listing comes after the city’s exchange tweaked the rules to allow double listings, while Chief Executive Carrie Lam had also been pushing Alibaba’s billionaire founder Jack Ma to sell shares in the city.
“The listing in Hong Kong will allow more of the company’s users and stakeholders in the Alibaba digital economy across Asia to invest and participate in Alibaba’s growth,” the company said.
It has long been expected to launch a multibillion-dollar stock listing in Hong Kong but appeared to postpone the offering because of political and economic turmoil.
Hong Kong’s key Hang Seng Index rose 0.48 percent in morning trading following the announcement
Chinese shoppers set new records for spending on Monday’s annual 24-hour “Singles’ Day” buying spree, despite an economic slowdown in the country and the worries over the US trade war.
It said consumers spent $38.3 billion on its platforms over that stretch, up 26 percent from the previous all-time high mark set last year.
Alibaba also said it saw record amounts of cross-border sales, underlining its plans to expand globally.
“Globalization is the future of Alibaba Group. We firmly believe the marriage of digital technology and commerce will bring about unprecedented change that will not be limited by borders,” Zhang said.